Up-to-the-minute advice, information, resources, and, on occasion, commentary on federal and New Jersey state income taxes, and the various New Jersey property tax rebate programs, and insights and observations on tax policy and professional tax practice, by 40-year veteran tax professional Robert D Flach.

Wednesday, September 24, 2008

ANOTHER CREDIT – FORM 8880

{Surprise! Surprise! Surprise! Bruce, THE TAX GUY, and I have decided to exchange our compatible/complimentary posts. So Bruce’s discussion of the Credit for Qualified Retirement Savings Contribution appears here at TWTP and my take on the topic appears at THE TAX GUY. rdf}

Here is the second post of a continuous feature of well-matched/like-minded post with Robert D. Flach, aka THE WONDERING TAX PRO. Be sure to go see his post today titled “Let Uncle Sam Subsidize Your Retirement Savings” which appears over at THE TAX GUY.

.As tax time starts its approach various articles on the web and in print publications detail tips on how to save on taxes. I believe that no taxpayer should have to pay a penny more in tax than they actually owe.

.One of the best parts about being a preparer is showing taxpayers new to them credits and deductions. Everyone’s face lights up when you show them something new and it makes them money (or they owe less in tax on their income – however you wanna look at it).

.Qualified lower and middle income taxpayers can benefit from this form. This nonrefundable credit applies to taxpayers who make retirement plan contributions.

.Meaning, if you make a contribution to a traditional IRA, or a Roth IRA, certain salary reduction contributions, or contributions to a plan, you may be able to claim a credit for a contribution. That is if your adjusted gross income is low enough.

.Okay some quick stats from the IRS:

.You may be able to take this credit if you, or your spouse if filing jointly, made -

· The amount on Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 36, is more than $26,000 ($39,000 if head of household; $52,000 if married filing jointly).· The person(s) who made the qualified contribution or elective deferral (a) was born after January 1, 1990, (b) is claimed as a dependent on someone else’s 2007 tax return, or (c) was a student.

Types of plans allowed -

· Traditional or Roth IRAs.· 401(k), 403(b), governmental 457, 501(c)(18)(D), SEP, or SIMPLE plans.· Distributions from your IRA (other than a Roth IRA) rolled over to your Roth IRA.· Loans from a qualified employer plan treated as a distribution.· Distributions of excess contributions or deferrals (and income allocable to such contributions or deferrals).· Distributions of contributions made during a tax year and returned (with any income allocable to such contributions) on or before the due date (including extensions) for that tax year.· Distributions of dividends paid on stock held by an employee stock ownership plan under section 404(k).· Distributions from a military retirement plan.

If you qualify for this credit it is great, not to mention a great surprise if you didn’t know about it. If you read this and see you could have claimed in in 2007, 2006 and/or 2005 please see your tax professional and inquire about filing an amended return. But do the math - if the refund claimed on the 1040X is less than what your preparer is going to charge for the amended return it is not worth it. Also use this next year for your 2008 filing if you can.

I love the 8880. A few years ago I just happened to hear about it as I walked past my tv. I am 60 now and will be withdrawing from my IRA soon - but with this free money offer - I beg, borrow or steal enough to get the maximum amount as retirement savings credit. I tell lots of people, but most don't have or are not willing to take money from their savings for an IRA and thus qualify for this free money. Go figure.

“You cannot take the credit if …the person(s) who made the qualified contribution or elective deferral…was a student.

You were a student if during any part of 5 calendar months of 2007 (or 2008) you:

*Were enrolled as a full-time student at a school, or

* Took a full-time, on-farm training course given by a school or a state, county, or local government agency.

A school includes technical, trade, and mechanical schools. It does not include on-the-job training courses, correspondence schools, or schools offering courses only through the internet.”

The instructions seem to imply that you must actually be physically attending classes. Because your program is 100% online you may be able to claim the credit. Is the educational institution that is offering the program an online institution, or is it a real “brick and mortar” school that offers both classroom teaching and online alternatives?

Do I have to take this credit. I will have to wait an extra 2-3 weeks for 90 bux. not to mention i lost a lot of money in my 401k anyway. i dont know much about this but i know i would rather not wait. Can i delete the form without going to prison or something stupid like getting audited?

My wife does not work and I made a little under 45K this past year and I contributed almost 2.5 thousand to my 401K. My wife and I file jointly every year as well. I stopped contributing around late November/early December for being a bit financially strained. I should still qualify and get the credit right?

Before contacting me with questions about how a blog post relates to your specific situation, please be aware that I do not give free tax advice to non-clients by e-mail, comment response, or phone. So don't waste your time and mine.